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Posted by By EMMANUEL MAYAH (mayah@sunnewsonline on 2007/07/15 | Views: 841 |

Investigative


jut as 66 million barrels of crude oil disappeared under the Obasanjo regime, millions of dollars of tax revenue equally crawled into private pockets. And that was in just one spell. EMMANUEL MAYAH (mayah@sunnewsonline) delves into the predatory world of tax swindlers and uncovered some of the criminal schemes that have produced not a few billionaires.

In February 2004, a Nigerian, Samuel Ogidan, was arrested at Detroit Airport in US, not with cocaine but with an undeclared sum of $60,000 in his possession. Given the notoriety of the culture from which he was coming, investigators were not surprise to discover that the Nigerian was on the run, having just embezzled the sum of $445,000 in traveller’s cheques from Chevron Texaco where he was an accountant.

A little background check on the suspect would reveal that Ogidan may not have dipped his hand in some oil money but had merely intercepted a bit from millions of dollars of tax liability meant for the Federal Inland Revenue Service (FIRS).

Remote as it had appeared, the petty stunt by Ogidan would provide a window to the alarming world of tax rouges, peopled by accountants, auditors-general, financial controllers, multinational executives, bank and government officials, whose forte is designing tax avoidance and tax evasion schemes as well as the brazen plunder of tax revenues.

Despite the battle cry of "no more business as usual" by the erstwhile Obasanjo government, no other time had the nation perhaps witnessed more evolution of sharp practices that criminalized the business culture, compromised policymakers and generally subverted the country’s due process. One of the worst hit was the tax sector.

In the same manner that 66 million barrels of crude oil vanished into thin air, about $291 million tax revenue has been found to have also gone with the wind. According to the 2003 Auditor General’s Report of FIRS, obtained by Saturday Sun, a significant percentage of collected tax revenue found its way into private accounts.

For example, a total sum of N603,938.75 million, representing tax revenues, which was claimed to have been remitted to the Central Bank of Nigeria (CBN) by accountants at the FIRS, through seven designated banks, could not be traced to any CBN account by the Auditor-General. Another sum of $5,386,714.86 which the accountants at the FIRS claimed to have paid into the Stamp Duties Account with the Central Bank, Abuja, could not be traced by the auditors, even though the management claimed the funds were transferred to the Federation Pool Account.

Credit advances were neither issued nor made available by the CBN headquarters in respect of all the transfers to confirm the actual account into which the money was allegedly transferred. Similarly, another sum of N165.28 million in tax remittances which was claimed to have been paid by some designated banks into the local accounts of the Area Tax office at Ilupeju, Lagos, could not be traced in the CBN bank statement, even when the said account was being maintained at the CBN.

Saturday Sun gathered that when the searchlight beamed on the Kano office, it was found that tax revenues amounting to N580.83 million, collected between January and December 2002, and which had allegedly been remitted to the CBN Abuja, could not be traced to the CBN Statement of Accounts for that office. At the Lagos Island Area Tax Office, the auditors observed that arrears of income taxes owed by companies and totalling N20.44 million for the 1997 to 2002 assessment periods remained uncollected as at the time of the audit inspection in July 2003. At the Makurdi Tax Office, N78.12 million in company income tax arrears, owed by 234 companies, for the assessment periods 1997 to 2002, remained uncollected, while N37.24 million in education tax arrears remained outstanding against 205 companies in the state, Benue.

Complicity of commercial banks
Saturday Sun investigations revealed that various commercial banks designated for tax collection on behalf of the FIRS were also patterning the fraudulent activities and financial corruption at the FIRS by deliberately withholding tax proceeds for several months before remitting these revenues to the CBN, ostensibly for purposes of business transactions. For instance, the auditors observed that the sum of $5,514,571.43 collected by some banks on behalf of the VAT office in Wuse, Abuja, was delayed for up to 178 days thereby yielding interest for the banks before being paid over to the Central Bank. Similarly, at the Stamp Duties office in Abuja, another sum of N17.15 million was collected by designated banks and the money delayed in the banks’ vaults for up to 49 days before it was remitted to the CBN. However, the banks in question have refused to pay penalties totalling N222,862.00 on the fund.

Indeed, the octopus nature of the grubby hands inside the tax kitty is such that aside the menace of tax evasion and tax avoidance and the sharp practices of banks, there is the high-profile problem of what FIRS officials do with tax revenues once they get into their hands. For example, Saturday Sun learnt that between January 2001 and June 2002, contracts were awarded by the accountants at the FIRS for the supply of items of furniture for amounts totalling N51.75 million.

However, when the contract prices were compared with the current market prices as at October 30,2002, and a mark-up of 30 percent added, it was observed that the contract prices were grossly inflated by some N31.69 million. Contracts were also awarded to six contractors for the sum of N14.49 million to cover the cost of renovating and furnishing five area tax offices in Lagos, and a VAT office in Kano. It was also observed that the contract prices of items of furniture supplied were inflated by some N4.95 million.

A total sum of N48.33 million was spent by the FIRS on the purchase of some vehicles, but it was observed that the 5 percent withholding tax of N2.41 million which was due to the Federal Government was not deducted and remitted as required by FIRS circular 9902 of January 1, 1999. Also, Various tax deductions estimated at over N5 million, which were made between January 200 and December 2001 by the accountants and accounting officers from the salaries of staff members of the FIRS, were not remitted to the Federal Government.

Multinational menace
If anything, the 2007 general elections, with the wide circulation of fake tax clearance certificates, exposed the reflex of the ruling elites to evade tax. In the corporate circle, there abound armies of accountants and lawyers whose game is to devise tax avoidance schemes and exploit the archaic ‘domicile’ and ‘residence’ laws to enable companies avoid paying taxes in their environment of operations. More schemes are designed to facilitate tax evasion, special tax concession and capital flight.
In February 2004, an independent audit investigations into the accounts and operating activities of the oil company, Halliburton, revealed that between 2001 and 2002 the multinational paid sums amounting to $2.4 million in bribes to Nigerian tax officials to secure cover for tax evasion.

On interrogation by the Economic and Financial Crimes Commission (EFCC), Halliburton admitted that its officials paid the $2.4 million in exchange for tax favours and receiving tax cuts from its liabilities totalling more than N2 billion. Prior to the completion of any further investigations, the oil company quickly paid the sum of $2.9 million into the coffers of the Federal Government, this being what it considered to be its self-assessed outstanding obligations to the Nigerian government.

Such an unexpected gesture on the part of the multinational raised suspicion within the FIRS, which promptly requested further audit and investigations of all the accounting books of Halliburton. However, when asked to surrender its taxation books to the FIRS for audit and further investigations, the oil company failed to comply. It was only after the imposition of debt/judgement assessment on the company that Halliburton was forced to surrender its taxation books.

The outcome of the imposed audit and investigations revealed that Halliburton was liable for additional tax payments to the government of Nigeria and as a consequence, the FIRS in 2005 recovered a total amount of $6,686,380 and N136,970,372 from the American company. Indeed, the messy details of the company’s operating activities in Nigeria was such that both the EFCC and the US-based Federal Bureau of Investigation (FBI) had to jointly look into an alleged payment of over $100 million by Halliburton to bribe Nigerian Oil Ministry officials and the payment of another $200 million to other government officials.

While the searchlight was on Halliburton, those in the know were saying that the company was not alone. Indeed, not a few had been caught by the evasion bug. During the 1990’s, foreign oil companies were granted tax exemptions after they had claimed that there were growing oil reserves in Nigeria. Saturday Sun gathered that in the case of the tax exemption granted to AGIP, a dispute broke out between the auditors appointed by the Department of Petroleum Resources and AGIP, when the audit and investigations began questioning the veracity of the reserves claimed by AGIP and for which the company had already collected $200 million in tax exemption from the Nigerian government. More revelations were to come. With the intervention of the EFCC and the Senate Committee on Finance, audit and investigations of the accounts of AGIP petroleum revealed a further tax liability of $57,797,805.49 payable to the Federal Government.

As obtaining tax exemptions by fraudulent means became a standard practice, the threat of the EFCC and special independent audit investigations by a consultant appointed by the FIRS, led to the discovery and subsequent recovery of huge amounts of additional tax liabilities from many multinational corporations. Having been helped by their accountants and auditors to conceal these amounts, they had therefore claimed to have no tax liability to the government of Nigeria. The FIRS recovered $1,302,253 from Philip Oil Company; N5,711,459 from Eagle Transport and $464,204 from Technit Cimimontubi Nigeria.

Joint Venture Scam
Investigations revealed that several oil companies have conned successive Nigerian governments into granting them one exemption or the other which increases illegal capital flight. In 2003, for example, of the $4.8 billion worth of Joint Venture contracts approved by the Nigerian National Petroleum Corporation (NNPC), only $674 million representing 14 percent, were awarded to local contractors, while $4.2 billion representing 86 percent were awarded to the multinationals. This trend was again evidenced in the 2004 allocation for integrity to the Joint Venture partners. Of the total $54 billion allocated, AGIP was allotted $54 million; Chevron $121 million; EIF $26 million; Mobil $56 million; Pan Ocean $5.9 million Shell $117 million; and Texaco $22 million.

However, when the Senate Committee on petroleum Resources called upon all the multinationals to produce their inspection certificates to certify the integrity of their facilities and which would also justify the huge allocations requested and granted to their respective companies by the Nigerian government, some of the companies, failed to produce satisfactory documentation to support the millions of dollars allocated. Apparently, some of the oil companies thought that they could proceed to the senate committee on Petroleum Resources and merely show them the figure without duly explaining how it was arrived at, as was customary in the past, especially during the military era. In fact, one of the representatives of the oil companies reportedly questioned the rationale of the Senate Committee’s demand for certificate and documents to support the allocation, as this was not previously a requirement.

Phantom community welfare
It was at Chevron that another dimension from which multinationals gain undue tax advantage, was first uncovered. Saturday Sun gathered that there was a glaring case of a contentious expenditure of $25.5 million, which came to light as a result of investigations carried out by the consulting firm, ABZ Nigeria Limited. Chevron claimed to have spent that amount for the development of communities in its area of operation, but that amount was not reflected anywhere in the company’s audited accounts for that particular year. When questioned, the company’s Financial Controller, Mr. Olaniran Fashanu, could only say that "it was one of the most bizarre of all allegations." That did not, however, explain how such a huge expenditure was not reflected in the audited financial statement already declared "true and fair" by the external auditors.

Still on Chevron, the FIRS had debited the third largest oil producer in Nigeria with treasury receipts No. PP036337 and No. FOO133, for the amount of $224 million and $483,586 being petroleum taxes owed by Chevron for its operating activities for the 1997 and 1999 assessment years respectively. However, the consulting firm, ABZ, revealed in 2005 that Chevron had not paid the total amount due to the FIRS, since receiving the receipts. Following the detection, Chevron was referred to the EFCC by the FIRS. The former, after its own investigations, charged the multinational with an 11-point allegation of tax evasion. On the allegation of evasion of Petroleum Profit Tax (PPT) for 1997, it was discovered that Chevron actually made the payment but it was wrongly classified as royalty by the CBN; however the company was ordered to pay $6,516,643.00 in September 2004 for PPT 2001 which it had objected to.

Because activities in the oil and gas sector in Nigeria have long been kept opaque, many oil companies are suspected of inflating operational costs and exploiting tax credits and other tax offset. Saturday Sun gathered that allegations bordering on operations in the highly technical oil and gas sector are sometimes beyond the technical competence of the EFCCC and the FIRS to verify. But verification was not part of the problem when the FIRS served Shell Petroleum a tax assessment notice indicating its tax liability of $17,857,142.86 for the year 2003. To the shock of FIRS officials, Shell – the number one multinational oil company in Nigeria – claimed it was not liable to pay taxes in Nigeria.

To prove this, Shell did not only file an appeal to the FIRS’ Appeals Commissioner, it proceeded to the Federal High Court, the Court of Appeal and finally the Supreme Court. Having lost the legal battle at the various stages, Shell suddenly developed cold feet before the ruling of the Supreme Court was made public, and communicated its desire to resolve the matter with the FIRs out of court.
Aside the millions of dollars of tax revenue stuck in the complex schemes of the oil industry, Saturday Sun, gathered that as at December 2006, foreign airlines operating in Nigeria owe the country about $500 million in unpaid taxes. In the same month, it was discovered that over 33 government ministries, departments and agencies had failed to remit N59.15 billion deducted taxes to the coffers of the federal government.

Of the lot, Power Holding Company of Nigeria and the Independent National Electoral Commission are owing the highest tax areas of N6.2 billion. Other high debtors include the Ministry of Internal Affairs, N472 million; Raw Materials and Research Commission, N351 million; Corporate Affairs Commission, N243 million; Federal Ministry of Agriculture and Rural Development, N387 million and Ministry of Culture and Tourism, N187 million. Others are Ministry of works, N146.6 million; National Health Insurance Scheme, N134 million; Debt Management office, N172 million; Revenue Mobilisation and Fiscal Commission, N143.4 million; Ministry of Water Resources N17.177 billion and National Communication Commission N2.2 billion.

Modus operandi
Late in 2003, the EFCC chairman, Nuhu Ribadu, disclosed that a N2 billion tax swindle involving some banks had been uncovered. A second case of tax fraud involved a staggering N77.188 billion which later became a subject of probe by the House of Representatives’ Committee on Finance. Yet another tax liability of $77 million was discovered 2005 to have been concealed by erring multinational oil companies. Explaining the predilection of the nation’s public officials to organised tax fraud, a tax consultant, Mrs Bolaji Danny, told Saturday Sun that close to 50 percent of collectable taxes is lost every year due to diversion to private accounts, embezzlement and mismanagement of tax revenue. She said it is a paradox that accountants who prepare the entire financial statements of a company and external auditors who audit and certify the prepared financial statements as "true and fair" could, thereafter claim that they were both unaware of any malpractices such as tax avoidance, tax evasion and illegal capital flight.

As corruption in the area of Companies Income Tax, Personal Income Tax, Customs Duty, Petroleum Profit Tax and VAT is described as mind-boggling, Saturday Sun has uncovered some of the criminal schemes. The bogey is better understood when it is learnt that just as people pay bribes to secure employment in say the Nigerian Customs Service, so do they to get into the FIRS.
Basically, corrupt tax officials agree to overlook certain sources of income of an organisation or permit overstatement of various costs associated with the income, in return for massive bribes. However, there are various other schemes deviced to fleece the government.

One is the use of fake documents to claim tax credit. This involves the use of fake credit notes, especially for with-holding tax (tax on contracts and services) to claim undeserved credit. Another is the suppression and conversion of tax cheques. By this, tax cheques are deliberately cleared through accounts other than those meant for the purpose, with the ulterior motive of suppressing or illegally trading with the proceeds which are then cleared into private accounts.

Next on the line is cloning. This is the act of creating a replica of a genuine tax cheque with another beneficiary’s name. This cheque is then lodged into the fraudster’s account or his nominal account. When the forged cheque gets to clearing, it is swiched with a real but stolen tax cheque and the proceeds go to the fraudster. This is done with the aid of accomplices in the bank. Yet another tax fraud is called Laundering. By this, fraudsters collect cheques from taxpaying organisations with a fake identity. They sell the cheques to the banks, which trade with the proceeds before remittance and in some cases outright conversion to personal account. Then there is what is called cross carpeting. This works when officers of bank ‘A’ collect tax cheques from taxpayers only to place the cheque with bank ‘B’ for a fee.
Describing the fight against tax fraud as monumental, Bolaji Danny praised the Executive Chairman of FIRS, Ms Ifueko Omoigui, under whose leadership the tax agency has been able to collect an unprecedented N4.3 trillion in three years. She particularly praised the recent FIRS raid on corporate tax evaders including the Abuja-based Chase Restaurant Limited, operated by three Lebanese.













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